Grand jury probes Qwest

Business deals with vendors eyed

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DENVER — A federal grand jury is investigating business relationships between Qwest Communications International Inc. and 11 of its vendors, according to documents filed with the Securities and Exchange Commission.

The grand jury is investigating whether former Qwest executives accepted discounted stock from some vendors in exchange for giving them business, some of which Qwest may not have needed, The Wall Street Journal reported, citing people familiar with the investigation.

The grand jury investigation also was noted in SEC documents filed Friday by Tellium Inc., one of Qwest’s vendors. Tellium said the SEC is investigating whether New Jersey-based Tellium properly disclosed its relationships and business deals with Qwest.

The Justice Department has sought documents, interviews and grand jury testimony from people associated with Tellium, including its officers, the SEC filings said.

In 2000, Qwest and Tellium announced a multimillion-dollar agreement in which Qwest agreed to purchase Tellium’s optical switching equipment.

Tellium shareholders filed lawsuits in January alleging that the company did not disclose that Qwest could easily back out of the deal, and that Qwest never used the Tellium switches. The agreement between the two companies later was reduced.

Meanwhile, according to regulatory filings, seven former Qwest officers and affiliates purchased a total of 333,000 shares in Tellium before the company sold public stock.

Tellium shares rose nearly 50 percent on their first trading day, May 17, 2001, and seven former Qwest executives registered to sell their Tellium stock three months later, according to SEC filings. Six of those executives were serving on Tellium’s advisory board and received Tellium stock options, the documents said.

A Tellium spokesman said he couldn’t comment because of the ongoing investigation.

Tellium shares, which reached a high of nearly $30, closed at $1.33 Friday on the Nasdaq Stock Market.

The SEC has been investigating Qwest for its accounting for the last 18 months, and Qwest has announced restatements lowering revenue by $2.5 billion for 2000 through 2002.

In a separate case this week, former Qwest CEO Joseph Nacchio agreed to donate $400,000 to settle charges that he improperly profited from hot initial public offerings doled out by Salomon Smith Barney in exchange for steering business to the investment banking firm.

A Qwest spokesman said the Denver-based company was cooperating with federal investigations. A Nacchio representative declined comment.